JP Morgan shareholders have sued the bank over its $2bn (£1.3bn) trading loss,
alleging that a division within the bank had a “clandestine conversion” from
one designed to manage risk to one that made multi-billion dollar bets.

The bank failed to disclose “the similarly clandestine conversion of a unit within the company that was touted as providing a conservative risk-reduction function into a risky, short-term trading enterprise that exposed the company to large losses instead,” Mr Baker alleged in the suit.Photo: AFP/Getty

Jamie Dimon, JP Morgan’s chairman and chief executive, and Douglas Braunstein, the bank’s finance director, are accused of breaching fiduciary duty to investors and wasting the bank’s assets in a suit filed in New York by Californian shareholder James Baker.

America’s biggest bank by assets has been under fire since last week’s disclosure of losses that it has warned may get bigger.

The losses were racked up in derivatives bets made by traders in the London arm of the chief investment office (CIO), a $350bn division which invests deposits the bank has received from customers but has yet to lend out.

The bank failed to disclose “the similarly clandestine conversion of a unit within the company that was touted as providing a conservative risk-reduction function into a risky, short-term trading enterprise that exposed the company to large losses instead,” Mr Baker alleged in the suit.

Although JP Morgan has insisted the losses came from hedges that backfired, their scale has increased pressure on US regulators to ensure that the final version of the Volcker Rule – which bans banks from gambling with their own money – is free from the loopholes that Wall Street is pushing for.

Mr Dimon and Mr Braustein are accused in a second lawsuit filed by asset management firm Saratoga of making “materially false and misleading statements and omissions” about the trades when they were asked about them by analysts in April. At that time, media reports that the CIO was making risky bets were described by Mr Dimon as a “tempest in a teapot.”

Meanwhile, it was reported that JP Morgan’s asset management division had in effect been betting against Bruno Iksil, the London-based trader in the CIO who earned the moniker the ‘London Whale’ because of the size of the trades he was making.

While Mr Iksil was selling insurance against the possibility that a series of companies would default, a fund in the bank’s asset management division had been making the opposite bet, the New York Times reported.